Palo Alto Weekly

Editorial: with PCs, it's complicated

What a mess. A carefully negotiated deal, made in 2012, offered a developer the right to build 10 homes at Edgewood Plaza on the condition that it maintain an operating grocery store in perpetuity as the anchor tenant on the remaining commercial portion of the site.

It was the type of deal that had been encouraged by Palo Alto's zoning code through what is called a planned community (PC) zone. In exchange for negotiated "community benefits," the City Council could grant a property owner more development rights than would otherwise be permitted under the normal zoning, and, in theory at least, residents of the city would benefit enough to warrant the special exception and additional impacts.

Over the years, this PC zoning process has been repeatedly abused by developers who have managed to find a way to either negate or minimize the so-called public benefit, leaving them with a substantially more profitable development and the public shortchanged. Until the council finally decided in 2015 to stop, at least temporarily, doing PC agreements, they were the preferred approach by most developers and infuriated residents, who saw them as harmful, lopsided deals.

There were never any independent economic analyses to quantify the financial benefits to the developer of these arrangements and ensure they were appropriately shared with the city, nor was there any policy about what the public benefits should be to warrant these zoning exceptions. Each case was negotiated between the developer and city staff, as happened with the Sand Hill Property Company for the property at Edgewood Plaza, located on Embarcadero Road just west of the freeway.

The city thought it had secured a sure-fire and popular community benefit: the return of a neighborhood grocery store. Sand Hill guaranteed it would maintain a grocery store as a condition for being granted the additional development rights, or so it was thought.

Sand Hill landed The Fresh Market as a tenant and all seemed copacetic — until the grocery chain suddenly decided to pull out of Palo Alto in March 2015, less than two years after opening, leaving the 21,000-square-foot empty again. The Fresh Market apparently continued paying rent to Sand Hill, as obligated under its lease.

Sand Hill has been so opaque about its dealings and agreement with The Fresh Market that it is unknown if it sought to buy out the lease, was holding The Fresh Market to the terms of the lease to put the burden on it to find a new grocery tenant, or if the lease agreement contained provisions covering the closure of the market.

But as the space stood empty and neighborhood resentment mounted, in October 2015 the city began imposing $500 a day fines on Sand Hill for violating the development agreement, later increasing them to $5,000 a day. Sand Hill eventually stopped paying and challenged the city's right to levy the fines. An administrative law judge ruled in favor of the city in April, but Sand Hill then filed suit in Superior Court, and on Dec. 15, just as a new grocery operator was opening "The Market at Edgewood," Judge Peter Kirwan ruled the city improperly imposed the fines because the wording in the development agreement with Sand Hill wasn't clear enough that it required the developer to ensure the continued operation of a grocery store rather than simply that the use be restricted to a grocery store.

On Monday, in closed session, the City Council voted 7-2, with Mayor Kniss and Councilman Greg Tanaka dissenting, to appeal the ruling to the state Court of Appeals. It also rejected a settlement offer by Sand Hill that would have reduced the fines to a fraction of what the city has levied. The total amount at stake is more than $1 million.

Whether the city is likely to prevail on appeal is impossible to know, but one can assume that the council was advised in closed session by its attorneys it had a strong case and that filing an appeal would put pressure on Sand Hill to settle.

While we have strongly opposed the use of planned community zoning because of how it distorts the zoning and lacks transparency, we support the council's appeal of Kirwan's decision. We have no sympathy for Sand Hill Properties, which made a calculated business decision to risk having to pay fines if it could not maintain a grocery tenant. It freely concluded that obtaining permission to build the houses on the site was so valuable that it was worth possible problems of sustaining a grocer in the space. If it didn't negotiate protective language in its lease with The Fresh Market, that's not the city's problem.

Sand Hill is an active developer in the region and will undoubtedly be seeking approvals of future projects in Palo Alto. It would be smart for the company to settle this dispute at a price that provides substantial compensation to the city for Sand Hill's failure to meet its commitment under the development agreement, and at a price that makes it easy for the city to drop its appeal.

This story contains 835 words.

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Posted by Fact Check
a resident of Duveneck/St. Francis
on Feb 2, 2018 at 7:18 am

Really well written commentary. Clear and factually mostly accurate!

The Sand Hill Properties situation at Edgewood Plaza is definitely a travesty. It’s time for the City pull out its magnifying glass and look carefully at every step SHP makes in this City. Otherwise more and more projects are going to be fraught with deception and violations.

The nerve of Sand Hill to bite the hand that has fed it so many development deals! Instead of going to court, why not just comply?!

Posted by guhyn
a resident of South of Midtown
on Feb 2, 2018 at 10:35 am

Let's recall that judge! Clearly the intent of the city was unambiguous and for the judge to let them out on a technicality is a true subversion of justice and serves to undermine any contract written in this city. The judge must go. NOW!

I wonder what the fines will go to support? Anything in this neighborhood that benefits the homeowners?

Hundreds of homeowners in this neighborhood have been adversely impacted by this PC deal, and while we are thrilled that we once again have a local market, and many appreciate the new additions to the neighborhood commercial district (which was not included in Sand Hill's original plans, and took individuals threatening lawsuits due to violations of the CC&Rs for an historic Eichler district to achieve), many too have been permanently adversely impacted by the development, resulting in increased neighborhood traffic, parking problems, and were temporarily adversely impacted by the years of demolition and construction. Without a grocery store at hand, those in this neighborhood had to make extra trips -- involving expense of time, and often gas and carbon, impacting other areas....

Posted by Observer
a resident of Another Palo Alto neighborhood
on Feb 2, 2018 at 10:47 am

The real problem with the Edgewood deal was the idea that it should be so hard to build 10 homes if you own land that has room for them. That pretty much explains why it's so incredibly expensive to live in Palo Alto.

We've become the poster child for NIMBYism in the Bay Area, especially after the well-publicized argument in the media between Kate Downing and former Mayor Pat Burt. That exchange did not reflect well on us.

When I bought into Palo Alto, I thought we were an open, inclusive city that welcomed strangers. Well, maybe we can be again.

Posted by Judith Wasserman
a resident of Leland Manor/Garland Drive
on Feb 2, 2018 at 10:53 amJudith Wasserman is a registered user.

The problem with PC's is the ambiguous language in the ordinance. It says the project should have value to the public, not that there should be something added to sweeten it. A review and revision are long overdue.

Posted by Anonymous
a resident of Duveneck/St. Francis
on Feb 2, 2018 at 11:38 am

It isn’t stated strongly enough that this developer promptly built the ten homes and made tens of millions, meanwhile we neighbors are left with a decidedly unsure situation going forward at the Edgewood Shopping Center.
We had no grocery for - what - 2 1/2 years? Meanwhile, commuters/carpoolers got accustomed to using the parking lot. It’s supposed to be a retail shopping center. I fear future nail salons and 7-11 being the center management’s choice down the line. Excuse after excuse and limited info from the developer.
Meanwhile, I compliment Chef Zhao Kitchen, the successful, high quality restaurant at the center. Success until Infear their landlord raises the rent....avoid doing business with Sand Hill Properties in future, please, City of Palo Alto.

Posted by allen
a resident of Old Palo Alto
on Feb 2, 2018 at 12:10 pm

Dear City Council. Quit changing the zoning to allow developers to make huge profits off destroying our city. We can't undo Edgewood but we don't need to change the zoning at Page Mill and El Camino. That is zoned for public use and should stay that way.

Posted by Edgewood Shopper
a resident of Downtown North
on Feb 2, 2018 at 12:15 pm

guhyn: Your comment is quite disturbing. We should respect the judiciary even when we strongly disagree with a decision, and protect our judges from irrational, emotional, knee-jerk attacks. The editorial was well-written and handled its disagreement with the judge's decision in a respectful and thoughtful way. Attacking this judge, any judge, for a decision you don't like and calling for a recall, with no evidence or even suspicion of corruption or incompetency, is irresponsible and threatens the independence of the judiciary. And it does nothing to advance our understanding of the issues in this matter.

Posted by Bogus
a resident of Downtown North
on Feb 2, 2018 at 1:05 pm

The real problem is the palo alto fetish for undersized, overpriced grocery stores. Jj&f is gone. No need to bow to college terrace demand anymore.
And this" editorial" is again just propoganda for the pasz, anti- everything crowd.

I am not sure what is that complicated about PC zoning ... every example I have seen in the past has gone about the same way. Developer asks for zoning exceptions worth big $$$ in extra profits, promises questionable "public benefits" worth little $, City jerks said developer around and ultimately agrees to public benefits that are still worth little $ (or in some cases completely worthless) and creation of any real public benefits is unenforceable. Developer completes project ... then quietly public benefits go away with little or no follow-up/consequences. Examples abound ... public spaces converted into private seating areas for a restaurant, public meeting space which no one knows about or can utilize, public art that no one can find, grocery stores that close down shortly after project completion, "the building itself is the public benefit", etc. It really isn't that complicated... no more PC zoning exceptions! As GWB once famously said... there is an old saying... Fool me once shame.... shame on you ... uh, fool me ... you can't get fooled again!

Posted by Steven
a resident of Crescent Park
on Feb 2, 2018 at 10:37 pm

Two problems. One legal and the other theory. The legal problem was that the city never had a contract with Sand Hill to provide a grocery. Usually theses requirements are spelled out in a development agreement or some other binding contract that requires both parties to sign on the dotted line. Not here. The grocery store requirement was made in the enabling ordinance for the PC, and no penalties were spelled out. The city won’t have an easy time with the appeal. Next time, get a contract.

The theory problem is that council can’t wave a wand and make a viable store happen. It was hard for Sand Hill and/or Fresh Market to find a new store because that location is no longer able to support a grocery store. Wishful thinking by council and neighborhood activists won’t change that fact. Suburban grocery stores need younger families in their vicinity than the aging Edgewood demos. Council thinks it can create successful retail by just passing an ordinance. But it takes much more than that.

Posted by Bogus
a resident of Downtown North
on Feb 3, 2018 at 10:40 am

Steven- well stated. Holman et al think they can pass ordinances mandating stores and banning chain stores. And then, magically, mom and pop retail will open up and be successful. Cleary they have no clue what the free market is.

Posted by Jerry Underdal
a resident of Barron Park
on Feb 3, 2018 at 11:49 am

The community benefit offered to gain city council support for a development but instead generated a revolt that upended Palo Alto politics was not the fanciful washing machine statue and patio at Cafe Riace. Nor was it any of several (successful) attempts to play on the desire to buy groceries the way we used to in exchange for profitable exemptions to development constraints.

No, what galvanized neighborhoods across town was the community benefit of providing low-income housing for seniors on Maybell Avenue. At the time, we were told by council members and others that without the Planned Community tool it was difficult to see any affordable housing projects getting built in P. A.

Measure D overturned the project in 2013 and building affordable housing took a back seat. Palo Alto Housing, faced with a hostile political climate in P.A., put together projects in neighboring cities to address the region-wide shortage.

Palo Alto is under the gun now for not meeting its housing responsibilities. Without the flexibility of Planned Community zoning, the city is handicapped in its ability to demonstrate a good faith effort to meet regional and state goals for providing housing at various income levels. Patience with foot-dragging is wearing thin.

I have no suggestions. I will watch with interest to see how political and economic forces play out going forward.

Definition: "flexibility of Planned Community zoning": a system by which politically connected real estate developers can avoid the rules that apply to everyone else by means of campaign contributions to ethically challenged city politicians. Synonyms: graft, bribery, fraud, deceit.

Posted by Jerry Underdal
a resident of Barron Park
on Feb 3, 2018 at 4:23 pmJerry Underdal is a registered user.

Edit to 2nd paragraph of my prior post

"No, what galvanized neighborhoods across town was [opposition to] the community benefit of providing low-income housing for seniors on Maybell Avenue. At the time, we were told by council members and others that without the Planned Community tool it was difficult to see any affordable housing projects getting built in P. A. [Opponents of the project were unimpressed by this argument.]"

Maybe somebody should also educate them that those silly little toy cars arrayed on a PC office building's doorway arch (395 Lytton) are not a public benefit, but the developer's mocking poke in the eye for those city hallers who obediently believed his claim they were a public benefit.

Posted by Robert Smith
a resident of Duveneck/St. Francis
on Feb 5, 2018 at 11:53 am

As a resident of the Edgewood area, I didn't actually want the developer's money from the fines. I wanted the developer to honor his commitment to maintain an open grocery store at the site, and the fines were just a motivation to a developer who was otherwise very satisfied and therefore "patient" (his word) about getting a new grocer.

As to the PC ordinance and process, I have never been in favor of it. The ordinance should be repealed or rewritten to restrict the kinds of projects that might use it.

The city has failed in multiple ways to handle PC's correctly. Here are some of the things that the city would need to do.

1. DETERMINE THE "REASONABLENESS" of the proposed benefits. Is it likely that it will be possible to provide those benefits? If the benefit is a business, then why aren't established businesses or entrepreneurs jumping in to provide that business if it makes sense? [Note: small neighborhood grocery stores are not considered a good idea by the industry. Palo Alto has 3 PC's based on groceries, and all three have had problems.]
2. DO THE BENEFITS OUTWEIGH THE COSTS to the community? We are giving away huge incentives to developers for marginal benefits. Does the College Terrace market really do the community enough good to offset that huge building and its entrenched ugliness? The "brutalist" building just demolished down the street was more attractive.]
3. WRITE ENFORCEABLE AGREEMENTS: The City has been very careless in the actual ordinance, which constitute the legal contract. This is what happened at Edgewood. These ordinances are often written at 10 o'clock at night with the city council members wordsmithing as the clerks type in the text. Of course, every ambiguity and typo becomes part of the legal record, and the developer will hire expensive attorneys to examine every word and character in the document for points of attack when the developer decides to renege on his deal.
4. ENFORCE THE PC's: To its credit, the city has been trying to enforce the Edgewood situation; but this is only because the community has pushed the city to do so. PC's with no such constituency get no attention. The attitude of council is pretty much one of disinterest, and they would rather move on to something else than to return to some old PC that predates their membership on the council. An example is the building at the corner of Park and Sheridan, which was a PC with the benefit being an open public space. This space has been completely consumed by a restaurant, Cafe Riace, which now uses it for its seating. See their website for a view of the space that is supposed to be public space, or drive by. Why doesn't the council enforce this PC?

PC's became a tool for developers to override zoning to build big buildings by promising unlikely but seemingly attractive things and then minimizing or eliminating the benefits.

Posted by Anon
a resident of Another Palo Alto neighborhood
on Feb 5, 2018 at 2:04 pm

Posted by Curmudgeon, a resident of Downtown North

>> Maybe somebody should also educate them that those silly little toy cars arrayed on a PC office building's doorway arch (395 Lytton) are not a public benefit, but the developer's mocking poke in the eye for those city hallers who obediently believed his claim they were a public benefit.

Where is this exactly? Is there a picture online? Maybe I can go look next Sunday AM.

And, seriously, does the building have designated public benefits, and, is a doorway arch part of that? Or are you just being "arch"?